Did you know that the FDIC is about to start issuing securitized mortgages as an investment instrument?
Neither did I.
But thanks to Barron’s, we now know that the SEC has approved a “pilot program” for securitization. The reason for this is of course cash. So far, the FDIC has closed over 300 failed banks, draining its cash reserves. For their troubles, the FDIC now owns over $37 billion of bad-bank assets, worth, well, whatever someone else is willing to buy ’em for. Best guess is from 10 to 50 cents on the dollar.
Hence, the new Securitization Pilot Program. According to Barron’s, the FDIC will be able “to push much of the losses off its books, thanks to the U.S. guarantee of principal and interest.” When the program officially launches, the first issue will be a $500 million in paper. These notes are backed by loans that are bundled into agency-administered pools.
The legality of this action is confirmed by Westlaw, which notes the SEC “confirmed the registration exempt status of senior certificates issued by a mortgage trust established by the Federal Deposit Insurance Corp.’s (FDIC) pilot securitization program. The senior certificates are exempt from registration because they will be considered guaranteed by an instrumentality of the United States.”
If you want to get even more granular, then the Bank Digest has the specifics:
The SEC responded to a Federal Deposit Insurance Corp. letter seeking an interpretation of Section 3(a)(2) of the Securities Act of 1933, as it relates to the exempt status of certain senior certificates to be issued by a mortgage trust established pursuant to the FDIC’s pilot securitization program, the SEC has concurred that the senior certificates will be considered guaranteed by an instrumentality of the United States for purposes of Section 3(a)(2).
No word on whether Moody’s or S&P will be rating these . . .
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Sources:
Uncle Sam Rides Again: Banking on a Bailout?
JACK WILLOUGHBY
Barron’s, JULY 24, 2010
http://online.barrons.com/article/SB50001424052970204078204575377281587827838.html
Federal Deposit Insurance Corporation Pilot Securitization-Guaranteed Senior Certificates
FDIC Legal Division, July 12,2010
http://www.sec.gov/divisions/corpfin/cf-noaction/2010/fdic071210-3a2-incoming.pdf
Response of the Office of Chief Counsel
Division of Corporation Finance
Securities Act of 1933 Section 3(a)(2)
July 12, 2010
http://www.sec.gov/divisions/corpfin/cf-noaction/2010/fdic071210-3a2.htm
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